New Jersey Bans Tesla to Protect Car Dealer Monopolies

Tesla Motors, the Silicon Valley-based electronic car company that has revolutionized energy efficient vehicles and become a cult icon, operates its business like Apple. It designs amazing products, then sells them direct-to-consumers through specialty branded stores, staffed with knowledgeable sales associates. By cutting out the middleman, Tesla can pass more savings on to the consumer, generate better economics for its stockholders, and bring to the horribly out-of-date car industry the same model that works so well in iPads, iPhones, and iMacs.

The Tesla Motors showroom in Munich, Germany …

In what has to be one of the most insane displays of anti-capitalism and political bribery I’ve ever seen in my own lifetime, the car dealer lobby in the State of New Jersey, terrified that Tesla’s success would cause them to lose customers and encourage other car companies like Ford to innovate with the Apple model, made a backroom deal with the regulatory board that effectively bans Tesla from doing business in the state by requiring all car companies to sell through a middleman.

You read that right. Tesla can’t do business in New Jersey because it refuses to sell through a middleman who can charge the consumer a markup. Since this threatens the other car dealers’ monopolies, they basically created a way to use the law to ban free market competition.

Breaking his promise to let the legislature vote on the matter, Chris Christie caved to the car dealers after they realized the people of New Jersey were not going to accept the ban. Tesla is going to the courts to get the regulation struck down as unconstitutional. I hope they win. It goes into effect on April 1st and will apply even to the existing showrooms Tesla already has in New Jersey, meaning they will be forced to close unless a preliminary injunction is granted.

One thing is certain: I’ll no longer support Chris Christie if he runs for President. There have been a few other cases like this where his decisions weren’t what was best for his state, but what was best for his own political ambitions and the Tesla case just happened to be the tipping point. I also think a sufficient body of evidence has emerged that he has a petty streak that would make it difficult for him to effectively govern the executive branch on a national level (then again, perhaps that is wrong – Nancy Pelosi’s father, a legendary politician in his own right, had a book of favors and revenge he kept on anyone and everyone from whom he could call in help so he could win any battle he entered; he’d buy homeless people lunch and extract promises that if he ever showed up on election day and asked for their vote in a close call, they’d go to the polls.)

Joshua Kennon is a private investor who owns several companies, including one of America's largest letterman jacket businesses, selling both to the public and schools, institutions, and businesses through its team supply division. He is the Investing for Beginners guide at About.com, and the author of The Complete Idiot's Guide to Investing, 3rd Edition.

One thing is certain: Come hell or highwater, I will not vote for Chris Christie for President.

👏👏👏

New Jersey isn’t the only state to try this. Tesla has run into comparable problems in a handful of other states. I don’t see any of these laws being upheld as constitutional. They blatantly discriminate against interstate commerce, in violation of Article I and the 10th Amendment.

John

Christie looks like a slimeball, on that alone I’d wager a lot of money on him never having a chance of becoming president.

The traffic controversy and anti-competition are the nails in the coffin.

Anon

I love Tesla. I’m looking forward to buying one in ~3-5 years. I want to buy the iPad with Retina equivalent, not the first iPad.

I’m looking forward to the day when car salesmen are no more. It’s worth all the potential downsides (smaller inventory, delivery delays, no discounts, etc.).

On the Chris Christie comments, I thought they were a tad extreme. It’s like complaining about your daughter’s cat and how it kills mice and stinks up the place. That’s all cats. Wait until you hear about dogs. Pretty much same story. Just because a certain story is publicized (which may or may not be accurate), doesn’t mean every other politician out there doesn’t have his own private little version. Our current leader comes to mind.

John

blocking free market competition is inexcusable, especially when it is for “special interest” groups.

Anon

I’m thinking you would find it excusable and good and proper if you happened to agree with the particular special interest group, no?

It’s how the saying goes: all Congressmen are in favor of cutting wasteful or pork barrel spending, except in their own district!

If you’re a Democrat, you understand that unions constitute a special interest group, right? And that they like minimum wages and overtime and benefits?

On the other hand, if you’re a Republican, well, just turn on any news channel and insert the examples here.

John

Nope I’m not in favor of pandering to any special interest groups. Gov intervention is only permitted in cases where the free markets clearly fail, financial risk taking etc springs to mind. Tesla is on the opposite end of that spectrum, free markets triumphing.

Anon

Okay! You’re a unicorn! So I guess unicorns are real now!

You do realize there’s a disconnect between “blocking free market competition is inexcusable” and “government intervention is only permitted in cases where the free markets clearly fail”? Who determines when “the free markets clearly fail”?

It’s like saying “using nuclear weapons is inexcusable,” but then turning around and saying “use of nuclear weapons is only permitted when X (the other side used a nuke first, you’re about to lose the war, etc).”

I wonder if you are, or have ever been, in favor of bailing out the financial system a few years ago? Were we facing a free market failure then? How about the stimulus?

Anyway, like I mentioned before, I love Tesla and would love for their cars to be sold in all 50 states without having to go through the traditional franchise dealership model.

John

I don’t see why you’re saying you love Tesla and then jumping in to defend Christie? Clearly you’re the one with the agenda here. Did your google alert go off?

Anon

Just because I found some comments about Chris Christine a tad extreme, doesn’t mean I agree with the Tesla situation in New Jersey. Like I said, I don’t.

Think of it in terms of percentages. For example, using fake/exaggerated numbers, let’s say I like Chris Christie 70%, George W. Bush 90%, Barack Obama 30%, etc. (In other words, I like Barack Obama’s decisions and actions, adjusted for importance, 30% of the time). There’s no 100%.

Joshua’s comments effectively pegged Chris Christie at 0%. In my opinion, that was a tad extreme. Maybe 20%? 40%? What if Chris Christie runs against a modern day Hitler?

http://www.joshuakennon.com/ Joshua Kennon

Joshua’s comments effectively pegged Chris Christie at 0%.

I see how it came across that way, which is my fault. I should clarify that this is not a single issue decision. There have been a few other cases like this where his decisions weren’t what was best for his state, but what was best for his own political ambitions and the Tesla case just happened to be the tipping point. I also think a sufficient body of evidence has emerged that he has a petty streak that would make it difficult for him to effectively govern the executive branch on a national level (then again, perhaps that is wrong – Nancy Pelosi’s father, a legendary politician in his own right, had a book of favors and revenge he kept on anyone and everyone from whom he could call in help so he could win any battle he entered; he’d buy homeless people lunch and extract promises that if he ever showed up on election day and asked for their vote in a close call, they’d go to the polls.)

Were I required to peg a percentage? I’d give Christie a +55% in his favor. The problem is the 45% he is lacking is the 45% that matters a great deal to me.

http://www.joshuakennon.com/ Joshua Kennon

I responded to you elsewhere in this thread from the admin panel, but I’ll repeat it here to make sure it goes through before I have to leave to get some work done.

I see how the comments about Christie came across that way, which is entirely my fault. I should clarify that this is not a single issue decision. There have been a few other cases like this where his decisions weren’t what was best for his state, but what was best for his own political ambitions and the Tesla case just happened to be the tipping point. I also think a sufficient body of evidence has emerged that he has a petty streak that would make it difficult for him to effectively govern the executive branch on a national level (then again, perhaps that is wrong – Nancy Pelosi’s father, a legendary politician in his own right, had a book of favors and revenge he kept on anyone and everyone from whom he could call in help so he could win any battle he entered; he’d buy homeless people lunch and extract promises that if he ever showed up on election day and asked for their vote in a close call, they’d go to the polls.)

Were I required to peg a percentage? I’d give Christie a +55% in his favor. The problem is the 45% he is lacking is the 45% that matters a great deal to me.

And, to be perfectly fair, I should have qualified my comments. I was a bit enraged reading the detail of the backroom deal where the lobbyist got the 6-0 vote from the regulatory panel. If Christie were running against an avowed communist who wanted to redistribute wealth or pass a constitutional amendment banning religion or whatever, yes, I’d vote for him. I’ll re-write the above texts to enter this qualification.

Anon

Blog
March 14, 2014

To the People of New Jersey

By Elon Musk,
Chairman, Product Architect & CEO

On Tuesday, under pressure from the New Jersey auto dealer lobby to protect its monopoly, the New Jersey Motor Vehicle Commission, composed of political appointees of the Governor, ended your right to purchase vehicles at a manufacturer store within the state. Governor Christie had promised that this would be put to a vote of the elected state legislature, which is the appropriate way to change the law. When it became apparent to the auto dealer lobby that this approach would not succeed, they cut a backroom deal with the Governor to circumvent the legislative process and pass a regulation that is fundamentally contrary to the intent of the law.

It is worth examining the history of these laws to understand why they exist, as the auto dealer franchise laws were originally put in place for a just cause and are now being twisted to an unjust purpose. Many decades ago, the incumbent auto manufacturers sold franchises to generate capital and gain a salesforce. The franchisees then further invested a lot of their money and time in building up the dealerships. That’s a fair deal and it should not be broken. However, some of the big auto companies later engaged in pressure tactics to get the franchisees to sell their dealerships back at a low price. The franchisees rightly sought protection from their state legislatures, which resulted in the laws on the books today throughout the United States (these laws are not present anywhere else in the world).

The intent was simply to prevent a fair and longstanding deal between an existing auto company and its dealers from being broken, not to prevent a new company that has no franchisees from selling directly to consumers. In most states, the laws are reasonable and clear. In a handful of states, the laws were written in an overzealous or ambiguous manner. When all auto companies sold through franchises, this didn’t really matter. However, when Tesla came along as a new company with no existing franchisees, the auto dealers, who possess vastly more resources and influence than Tesla, nonetheless sought to force us to sell through them.

The reason that we did not choose to do this is that the auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none. Moreover, it is much harder to sell a new technology car from a new company when people are so used to the old. Inevitably, they revert to selling what’s easy and it is game over for the new company.

The evidence is clear: when has an American startup auto company ever succeeded by selling through auto dealers? The last successful American car company was Chrysler, which was founded almost a century ago, and even they went bankrupt a few years ago, along with General Motors. Since the founding of Chrysler, there have been dozens of failures, Tucker and DeLorean being simply the most well-known. In recent years, electric car startups, such as Fisker, Coda, and many others, attempted to use auto dealers and all failed.

An even bigger conflict of interest with auto dealers is that they make most of their profit from service, but electric cars require much less service than gasoline cars. There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car. Also, all Tesla Model S vehicles are capable of over-the-air updates to upgrade the software, just like your phone or computer, so no visit to the service center is required for that either.

Going a step further, I have made it a principle within Tesla that we should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks. Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me personally on several occasions when I drove gasoline cars. I resolved that we would endeavor never to do such a thing at Tesla, as described in the Tesla service blog post I wrote last year.

Why Did They Claim That This Change Was Necessary?

The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures “consumer protection”. If you believe this, Gov. Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of “protection”, this is obviously untrue. As anyone who has been through the conventional auto dealer purchase process knows, consumer protection is pretty much the furthest thing from the typical car dealer’s mind.

There are other ways to assess the premise that auto dealers take better care of customers than Tesla does. Consumer Reports conducts an annual survey of 1.1 million subscribers, which factors in quality, reliability and consumer satisfaction. The Tesla Model S was the top overall pick of any vehicle in the world, scoring 99 out of 100. This is the highest score any car has ever received. By comparison, in the industry report card, Ford, which sells their cars through franchise dealers, received a score of 50. BMW, which makes competing premium sedans, received a score of 66.

Consumers across the country have also voiced their opinion on the sales model they prefer. In North Carolina, a Triangle Business Journal poll found that 97 percent of people polled said Tesla should be allowed to sell cars directly. A poll by the Austin Business Journal showed that 86 percent of respondents were in favor of direct sales, and in a Los Angeles Times poll 99 percent of respondents came to the same conclusion. These aren’t polls that we commissioned and there are many more like them. We have not seen a single poll that didn’t result in an overwhelming majority saying they preferred the direct model to the traditional dealer model. Democracy is supposed to reflect the will of the people. When a politician acts in a manner so radically opposed to the will of the people who elected him, the only explanation is that there are other factors at play.

Going Forward

Some reassurances are also in order. Until at least April 1, everything is business as usual for Tesla in New Jersey. It should also be noted that this regulation deals only with sales, so our service centers will not be affected. Our stores will transition to being galleries, where you can see the car and ask questions of our staff, but we will not be able to discuss price or complete a sale in the store. However, that can still be done at our Manhattan store just over the river in Chelsea or our King of Prussia store near Philadelphia.

Most importantly, even after April 1, you will still be able to order vehicles from New Jersey for delivery in New Jersey on our TeslaMotors.com website.

Finally, we would like to thank the many people who showed up in Trenton on Tuesday to support Tesla and speak out against the MVC’s back-door tactics in passing this regulation change without public consultation or due process. It was an amazing response at very short notice and much appreciated.

Elon

Lord Squidworth

“which is the appropriate way to change the law.”

Change the law of capitalism? So next anyone making and selling furniture will have to start using a furniture store middleman?

This is political corruption. Nothing more.

Adam

It happened in Texas because we have a car dealer billionaire and his coalition spent $1.4M lobbying the ban.

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Joshua Kennon is a private investor who owns several companies, including one of America's largest letterman jacket businesses, selling both to the public and schools, institutions, and businesses through its team supply division. He is the Investing for Beginners guide at About.com, and the author of The Complete Idiot's Guide to Investing, 3rd Edition.